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10% Tuesday Correction – Have We Fallen Far Enough?

Wheeeee!  

There's nothing like a nice sell-off when you're ready for it.  Yesterday's dip blasted our Short-Term Portfolio over the 200% line, up $207,272 for the year and up $23,088 (23%) since our 10/18 review as we briefly flipped more bullish for the bounce but then, since the bounce didn't make it over our Strong Bounce Levels, we doubled back down on our SQQQ hedges last week and turned ourselves back to bearish – just in time for this week's catastrophe.  

The primary purpose of the Short-Term Portfolio, which started with $100,000 on Jan 2nd of this year, is to protect the Long-Term Portfolio so we're always looking for bearish hedges – no matter how well the market is doing – but we also hedge our hedges with short-term long positions, to help lower the cost of our insurance.  For example, we sent out a Top Trade Alert to our Members on Sept 6th with the followin hedging idea (we very rarely add hedges to Top Trades, so it was a big deal):

  • Sell 10 MU 2021 $42 puts for $6.40 ($6,400) 
  • Buy 100 SDS March $34 calls for $2.60 ($26,000) 
  • Sell 100 SDS March $40 calls for $1.50 ($15,000) 

That was net $4,600 on the $60,000 spread and, unfortunately, we used Micron (MU), which turned around and fell 20% since then but, fortunately, we only promised to buy it for net $35.60 and it's now $34.60 so not a panic but those put contracts are now $12 ($12,000) so a bit of a drag but the S&P Ultra-Short (SDS) March $34s are now $7.50 ($75,000) and the $40s are now $4 ($40,000) so net $35,000 on the spread less $12,000 if we buy back the puts is $23,000 which is up $18,400 (400%), which is why the Short-Term Portfolio puts up such crazy gains in a pullback.

Now I do still like MU but, as I said at the time – any stock you REALLY want to buy at the net put price will do.  Meanwhile, all SDS has to do is stay over $40 and the premium on the short calls will expire and the net of the spread will rise to $60,000 – so it could still almost triple up from here!  We hedge like this all year long and this just happens to be one of those times our insurance policies happen to pay off but THAT IS HOW INSURANCE WORKS – you pay for it regularly so it's there for you in case a disaster strikes – in this case a disaster to your portfolio.

Now that we've had our expected 10% correction though, the big question is whether we have further to fall or if, perhaps, we should cash in our hedges.  Well, spoiler alert – we won't be cashing in our hedges because, like SDS, we still have plenty left to gain and the only reason we'd lose them is if our long positions come back and our Long-Term Portfolio started with $500,000 – 5 times more than the STP – so we have a lot to protect!  

Looking at the update to the Dow chart we created last Thursday,  we're now completing that 10% sell-off we were expecting all summer and, at the time, I said:

The indexes were far too scary to trade overnight and, even this morning, I'm less than enthusiastic about the "rally" that's lifting the Dow (/YM) back to 24,800 because that's still 2,200 points (8%) down from 27,000 which means it is only a weak bounce (20% of the 10% drop) and we're not going to be impressed by anything less than getting back over the 25,300 mark, which is still 500 points away.

These are the same bounce lines we predicted we'd need yesterday morning after completing the 10% correction – we just weren't expecting to complete it yesterday and we didn't quite get to 24,300 (the 10% drop from 27,000) but we never quite got to 27,000 either – so fair is fair I suppose…

Actually, I'm not expecting us to bounce back to the strong lines and, as I said last night on Money Talk (where we announced our portfolio adjustments and DID manage to add the MJ trade we discussed yesterday morning), I think we're going to fail our lines and fall another 10%.  To that end, we added a Russell Ultra-Short (TZA) hedge to our Money Talk Portfolio in yesterday's review and, in our Live Member Chat Room, we added an additional Nasdaq Ultra-Short (SQQQ) to our Short-Term Portfolio at 10:40 am:

n the STP, we have 80 naked short Nasdaq Ultra-Short (SQQQ) March $14 calls at $1.25, now $2.13 with SQQQ at $13.65.  I'm still iffy about covering but let's not take too much risk so let's pick up 80 of the June $12 ($3.30)/17 ($2) bull call spreads at $1.30 ($10,400) as they are well in the money and only lose if the market is going up nicely 8 months from now in which case our longs will be up $250,000 so we won't be worried about losing $10,400, right?  

Overall, it adds about $30,000 of insurance (the upside potential) as well as letting the short SQQQs ride for $17,000 we gain if they expire worthless.

So it's another hedge, this one from last Thursday and that's what we do – we layer our hedges as the market falls to provide a constant stream of insurance payouts on the way down.  SQQQ tested $16 already yesterday and already the June $12 calls are $5 and the June $17 calls are $3.30 so net $1.70 is only an 0.40 ($3,200) gain so far but the potential payout is for $40,000 – so it's still good for a new hedge if you need it.

Remember:  I can only tell you what the market is likely to do and how to make money trading it – that is the extent of my powers…

Now we need to watch all the 10% lines to see if they fail and those and we're not goingt to get bullish again until we are back over our strong bounce lines – which would be 6% off the top, recapturing 40% of the drop.  Failing those 10% lines is a strong sign that we are on our way to a 20% correction – another 10% lower than we are now.  Those 10% lines to watch are:

  • Dow 24,300 with a weak bounce at 24,800 and a strong bounce at 25,300
  • S&P 2,640 with a weak bounce at 2,710 and a strong bounce at 2,780
  • Nasdaq 6,870 with a weak bounce at 7,080 and a strong bounce at 7,230
  • Russell 1,485 with a weak bounce at 1,530 and a strong bounce at 1,575
  • NYSE 11,880 with a weak bounce at 12,150 and a strong bounce at 12,400

All that red is NOT GOOD and, as you can see, we're right on the cusp on the Russell and S&P so, if they go red – it will be time to layer in another hedge!  Forget the levels – last Wednesday I put up this list of 30 Risks to the Markets in 2018 and these are the same FUNDAMENTAL issues that kept me banging the caution table all summer long and, until some of these things get resolved – there's no reason for this market not to keep going lower.  

This morning China made two desperate moves to stop their own market bleeding – they lowered the Yuan to 6.9574 to the Dollar – their weakest level since May of 2008, when their market was in the middle of a 50% correction and they also relaxed the rules – now ENCOURAGING companies to buy back their own stock (because no one else seems to want it).  In addition to that, Chinese Regulators are proposing a 50% reduction in the Auto Tax and the State Government is buying stakes in 47 private companies to prevent them from failing but I'm not sure they can save them all if these measures don't spur investor confidence. 

This is DIRE stuff folks.  Perhaps not 2008 dire, yet, but DIRE nontheless so please stop worrying about missing out on bottoms and make sure your portfolio is protected – in case this isn't the bottom.  I know you've been very anxious to buy and I've been pulling the reigns back all summer but it turns out I was right all summer so PLEASE – give me the benefit of the doubt now and continue to be very careful out there – thanks!  

More to come…

 


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  1. The lines I have been posting about – updated list. Looks pretty good so far:

    Dow – 24,700 then 24,200 (already through one)

    S&P – 2700 then 2650 and 2600 (bounced off 2600)

    Nasdaq – 6900/7000  then 6400/6600 zone (bounced off 6600)

    NYSE – 12,200 then 11,800 to 11,900 (bounced off 11800)

    Russell – 1510  where we bounced today then 1440/1450 (Must Hold line) (getting close)

    So far, pretty decent predictions!


  2. Good Morning.


  3. Completely insane:

    https://talkingpointsmemo.com/news/trump-wants-to-end-birthright-citizenship-executive-order

    In an interview with Axios, President Donald Trump aired his intent to end birthright citizenship, a right currently enshrined in the 14th Amendment that promises American citizenship to babies born on U.S. soil, no matter their parents’ citizenship status.

    I guess that means that unless your parents were already citizens, you can't get citizenship. How far do we go back to see who qualifies. Trump's mother was not born a US citizen!


  4. This is going to be implemented in many places eventually:

    https://arstechnica.com/tech-policy/2018/10/uk-set-to-impose-new-tech-tax-on-silicon-valley-giants/

    Britain's top financial official has included a new "tech tax" in the country's latest budget that would affect some of the world’s largest firms, including Apple, Google, Facebook, and others.


  5. FU GE!!!!



  6. …so you know, we have further to fall….


  7. GE green!!!!


  8. This could be good for GE long term, but man, you are going to have to be really patient! Very small position for me, but not adding yet. Need to see more.


  9. That nice little correction is like a breath of fresh air – I was just so tired of winning!


  10. Good morning! 

    GE down another 3% but doesn't hurt the Dow as it's only 0.40.  It's not the earnings or the dividend cut but an accounting probe that's hurting them.  Maybe the new CEO was a bit too enthusiastic in kitchen-sinking the outgoing numbers?

    Executives revealed Tuesday the Justice Department had opened an investigation into the company’s recent accounting practices, alongside an investigation that has been under way at the Securities and Exchange Commission. GE also said the SEC had expanded the scope of its inquiry.

    Both the Justice Department and SEC are investigating a $22 billion charge the company booked in the third quarter tied to acquisitions in GE’s power unit, as well as a $6 billion charge in the first quarter for a shortfall in insurance reserves, GE’s finance chief Jamie Miller told investors on a conference call Tuesday.

    GE reported a net loss of $22.8 billion in the third quarter because of the $22 billion charge, highlighting the depths of the problems facing the company. Mr. Culp took over on Oct. 1 after GE ousted its CEO and warned it would miss its cash flow and earnings goals for the year. GE didn’t provide updated financial projections Tuesday but executives cautioned that GE would significantly miss its previous targets.

    When it switched CEOs earlier this month, GE warned it would take an accounting charge of up to $23 billion for previous acquisitions in the power business, which makes turbines that generate electricity at power plants. The century-old business has suffered from deep losses amid a global drop in demand for power-generating equipment.

     

    The power division, which had been GE’s biggest in terms of revenue, has been at the center of GE’s financial and operational woes. The unit has cut thousands of jobs to adjust to the market, but GE has said it will take years to get the division back on track. GE said Tuesday it would cut additional costs by consolidating corporate functions at the power unit.

    • Q&A has just begun with new CEO Larry Culp and CFO Jamie Miller.
    • Do you see a need to move more quickly on the balance given the global/macro situation?
    • I think we're mindful of the market environment, but are more mindful of our leverage situation. We cut the dividend to preserve cash.
    • There has been a lot of disclosures coming out in shareholder lawsuits. Are you ruling out a need to raise more capital or equity raise?
    • We have no plans for an equity raise.
    • Business model at GE is very different than Danaher. Can you fix Power without fixing how you go to market?
    • Beyond compliance and quality, everything is on the table at Power.
    • You haven't given us EPS guidance. How should we think about GE's ability to generate earnings?
    • We are not offering updated guidance right now. We see real strength in healthcare and aviation, despite a drag from Power. Q4 has always been a strong volume quarter for the company. When we talk about numbers on a forward looking basis, we want to do that with conviction. I cannot do that 30 days into the job.
    • GE Capital… Can you give us an update about how much liabilities and if there is more work to be done?
    • We continue to shrink the unit. We monitor tax reform. WMC is something we continue to monitor. Interest rates are up more than planned, which is helpful, but it's something that we are monitoring.
    • Can you give us updates on Baker Hughes and GE Healthcare?
    • Baker Hughes has their earnings call shortly. We're still of the view of healthcare operating in an independent form. That might change and it's something we're monitoring.
    • Aviation was clearly a source of strength in the quarter. Do you think holding the margins while you ramp LEAP engines is the right way to go?
    • Global passenger travel is up, along with backlog and spare parts. We do see CFM levels coming down in the future, but it's offset with military spending and LEAP coming down the cost curve.
    • There have been reports of asset sales beyond the ones that have been reported? Are there other plans?
    • We have our $20B disposition plan in motion. Over time Baker Hughes and Healthcare may become independent, as well as planned sales in Aviation and Transportation.
    • GE -2.7% premarket
    • Previously: GE slashes dividend, splits power business (Oct. 30 2018)
    • Previously: General Electric misses by $0.06, revenue in-line, cuts dividend to $0.01/share (Oct. 30 2018)

    So where are we compared to China?

    Those are 10% lines going down, we're only down 10%!  

    Citizenship/StJ – I guess this country is closed now.  He already wants to build a wall – all part of the plan to "whiten" America back up before it's too late.

    Tech tax is a sensible reaction to the way those companies shuffle money around to avoid income tax.  

    GE/StJ – Very long wait ahead now. 

    Wow, another big move up on no volume for no reason.  These markets are AMAZING! 

    Oh wait, here's the reason:

    • President Trump tweets a quote from Wells Fargo's Scott Wren suggesting that the S&P 500 will get back to the 2,800-2,900 target range if the Fed takes a more "dovish" tone.
    • S&P rises 0.3% to 2,648; Dow +0.3% to 24,524; and Nasdaq -0.05%.

    CHK getting whacked.

    • Chesapeake Energy (NYSE:CHK-16.9% pre-market following its $4B deal for WildHorse Resource, but Q3 earnings topped analyst expectations and revenues rose 25% Y/Y to $2.42B.
    • CHK says Q3 production averaged 537K boe/day rose 5% Y/Y, adjusted for asset sales, and adjusted Q3 oil production of 89K bbl/day climbed 13%, primarily driven by higher volume growth from the Powder River Basin.
    • CHK says it expects to place an additional 15 wells on production in Q4 and projects an additional 65-70 Turner wells to be placed on production in 2019; it is also exploring the potential of adding a sixth rig in 2019, which likely would begin to focus on the Parkman and Niobrara formations.
    • CHK says it "continues to make significant progress on our strategic priorities, as demonstrated by our improved cash flow from operations, which was more than 50% higher than the 2017 third quarter due to higher average realized commodity prices and 13% growth in our adjusted oil production."
    • Lumber Liquidators (NYSE:LL) is down 12.0% in premarket trading after Q3 revenue falls short of estimates.
    • Comparable sales were up 2.1% during the quarter to miss the consensus estimate of +4.9% by a wide margin. A 5.5% increase in average sale price helped to offset a 3.4% drop in transactions during the quarter.
    • The company's gross margin was up 20 bps Y/Y to 36.2% of sales.
    • Previously: Lumber Liquidators beats by $0.09, misses on revenue (Oct. 30)
    • Presidents want to know everything, but if they know everything they can't do their job, says George W. Bush chief of staff Andrew Card.
    • Called into the president's private dining room for what he thought was going to be a really cool one-on-one lunch, Obama chief of staff Denis McDonough saw only one place setting (in front of the president), and quickly figured out he wasn't there to eat, but instead to be the meal (sure enough, he got dressed down). Lesson: You're not in the job to be social with the president, but instead to give him/her what they need to know to make decisions.
    • What about Trump? Forgetting his personal habits, Trump is unique because he's never been in government before, so there's going to be some guidance needed that might otherwise not be necessary. "Speak truth to power," says Card of what John Kelly needs to do.
    • Empathy, information, and timeliness are the keys to the job, says McDonough.
    • Turning to relations with the central bank, Andrew Card says every president has frustration with the Fed, but it's important to respect institutions.
    • Talking about Obama coming to the decision not to militarily intervene in Syria, McDonough says it was his job to let the president bounce the arguments of the National Security Council off of him, but not to give his opinion.
    • Talking about the events of 9/11, Card says he and Bush and the school principal were told of a plane crash in NYC before the schoolroom gathering began. None thought much of it as the early report was that it was a prop plane. Minutes later (with the gathering underway), a staffer told Card it was a passenger jet, and then a second crash. Bin Laden quickly came to Card's mind. He walked in and told the president, "America is under attack."
    • McDonough was in the room (though no longer chief of staff) when Obama and top staffers gathered to watch the taking down of Bin Laden. They (and us through them) were able to view this event, but McDonough reminds that Americans all over the world – at great risk to themselves – are performing heroic acts all the time. At a time when there's a lot of questions about American institutions, we should all take a lot of pride.
    • The Khashoggi situation? Americans need to understand the difficulty in dealing with this, says Card. Outrage is acceptable, but the White House needs to consider the consequences of the Saudi response to that outrage. McDonough takes a bit of issue with that, suggesting there's a line the Saudis crossed here. The White House needs to demand honest answers.
    • Toughest moment as chief of staff? After months of meetings in which the president had said job #1 for Obamacare was making sure the website worked at launch, McDonough had to inform Obama that the website, in fact, was not working. Good news always beats the chief of staff to the Oval Office, says McDonough. Not so much for bad news.
    • Advice for John Kelly? He's got a tough job, says McDonough, as he's getting it from both sides – called out in public by his president, and getting stabbed in the back by the White House staff.
    • Is Trump doing a good job? Card goes back to his grandma: "Taste your words before you spit them out." The president doesn't exactly do this, so his style is drowning out many of his good achievements.
    • Chain store sales increased 5.9% in the latest weekly read by Johnson Redbook vs. +5.4% for the week prior.
    • Month-to-date sales are 5.7% higher.
    • Fiat Chrysler (NYSE:FCAU): Q3 Non-GAAP EPS of €0.89; GAAP EPS of €0.36.
    • Revenue of €28.77B (+8.9% Y/Y)
    • Shares +2.25% PM.
    • Press Release

  11. Apple event is on, Tim Cook on stage.  AAPL $214 and could boost market further so Trump's tweet was well-timed.


  12. 10% / Phil – Russell is down 15% from its highs. We are only about 7% or so from where we started 2017!


  13. It's still amazing to see Trump already asking the Fed to help because we have a mild correction – the guy clearly doesn't understand anything! It's all about superficial stuff – market numbers matter more than the economy itself. Can't imagine what he would have done in 2008/2009. Thankfully we had someone with a cooler head in charge then.


  14. New 13.3" MacBook Air – I know what Jackie wants for Christmas…

    RUT/StJ – That's right, I forgot we already recalculated that.

    Well, consumers are still more and more confident:


  15. Phil/pension funds,

    heard from a friend that pension funds are widely underfunded and that will be the new that will take down the market hard..the new can be made public anytime this week….

    any insights in this?

    regards


  16. replace new with news in  my post..sorry


  17. so much for GE being green..

    what a POS stock!

    FU GE!!!!!!!!!!!!!!!


  18. That CCI index is bogus since it is supposedly tied to the stock market. Unless it is like everything else subject to revision. Suppose to be for the last month??


  19. Indices are going up nicely, but the spot VIX is not budging much. Not a great sign of confidence.


  20. TWTR – Trading above the 200 dMA.


  21. Beleaguered UAA up 25% today.


  22. AAPL is not getting a pop off that announcement.

    This is what I want for Christmas (or whatever day it's out):

    Seriously, the IPad is the only thing I own that, if it broke, I would just go right to the store and get another the same day.  Can't live without it.

    • Of course, the addition of Face ID means there is no longer a home button. 

    • On the inside, the iPad Pro uses the A12X Bionic chip.

    • It's a 7-nanometer chip similar to the A12 used in Apple's latest flagship iPhones. 

    • On the graphics front, we're hearing about Apple's 7-core GPU, which promises "Xbox One S-class graphics performance," according to Apple.

    As a guy who used to sell high-end computer systems in the 80s, this is like waking up in a science fiction movie set in the far future.  Never could have imagined, 30 years ago, that this stuff would be possible in 100 years, let alone 30.  That 7 nano chip, by the way, is the next level chip type that INTC has been unable to produce on schedule.  

    Image result for what is a nanometer

    This is cool, the pencil attaches and charges magnetically:

    I think this is great, multi-channel face-time:

    I hope AAPL goes lower so we can buy more.  I know I've been waiting and waiting to get a new IPad.

    Pension funds/Pat – That's been the case for a very long time.  Low rates have been very painful for them and should get a bit better but mostly, it's the demographic time bomb that's coming to kill the entire global economy.  

    Image result for people over 65 chart

    We're at the front end of that steep curve and no one has enough money to deal with it.  It's actually worse than this chart looks because we're right at the beginning of a steep acceleration, just crossing the 15% mark this year with a 50% increase in seniors over the next 20 years (including me in 10!):

    Image result for people over 65 chart

    If they have a big advance that cures or reduces cancer or heart disease and prolongs life expectancy by 5 years – the World will go bankrupt – or, we'll have to start shipping old people off-planet…

    VIX/StJ – Still way up there (compared to normal complacency):

    UAA/Albo – That's nuts!   There's just no rationale to prices anymore that they can go up or down that much on a single report.

    Shares of the sports apparel maker were climbing 23% in morning trading after the company reported third-quarter adjusted earnings of 25 cents a share, more than double the 12 cents that analysts were expecting.

    The Baltimore-based company also reported revenue of $1.44 billion, ahead of analysts' estimates of $1.41 billion.

    Looking ahead, Under Armour said it expects to earn between 19 cents and 22 cents a share for the fourth quarter, up from its previous outlook between 16 cents and 19 cents. 

    Wow, they lost 0.08 last Q and made 0.0 in Q1 and now they made 0.25 and next Q maybe 0.19!  That's net 0.36 for the year so of course they should pop $5 (14x total earnings) on that one data point, right?  

    I'm throwing in the towel on that one!

    Image result for towelie throw in the towel

     

     

     

      


  23. Love that towel !

    Looks like a lot of short covering.  Stock is expensive,


  24. Another rally bites the dust!  

    When will they learn?

    All the more worrying as China did things to prop us up and Trump is trying to tweet the market up and it's failing…


  25. As I have been saying since last week, I don't think that we are done going down! 

    And Trump is not helping at all – just reminding non-cult members how insane he is every day now. His base does not move the markets.


  26. Looks like TSLA has seen its high again minus 10 by now.


  27. Phil, seeking trade repair advice, as I'm still learning how to best get into these multi-leg option trades…in the LTP CAKE trade…filled all legs but one…I was never able to get the short Jan 2019 calls filled before the floor dropped out of everything.  (I have the exact same issue with an MDLZ butterfly position.).  Right now the uncovered short Jan 19 CAKE puts are down about $650 (I only did half of the position you recommended, so short only five puts, fortunately).  What is my best option right now?  Stand pat, and pray for a rebound (haha), roll out to a later date and cover with the short calls this time, like I should have to begin with? Also, any suggestions on how to avoid this scenario in the future is most welcome — it seems I would have had to sell the calls well below my target to have gotten into them.


  28. er, correction…confusing my MDLZ and CAKE trades…the short CAKE puts are 2021…the short CAKE calls I was trying to fill are Jan 2019, so less of an issue than I thought, but still interested in your advice.


  29. Repairs/Idi – First of all, if you are trying to fill 10 bull call spreads, try to do 2 and 2 5 times or 3 and 3 3 times, don't buy 10 uncovered calls when that wasn't the idea unless you feel strongly the momentum is going your way.   Sounds like you did that with 5 so not too terrible and look how cheap your next 5 will be!  cheeky

    We only have CAKE in the LTP as such:

    Long Call 2021 15-JAN 45.00 CALL [CAKE @ $48.15 $0.30] 25 9/28/2018 (808) $34,625 $13.85 $-3.90 $13.85     $9.95 - $-9,750 -28.2% $24,875
    Short Call 2021 15-JAN 60.00 CALL [CAKE @ $48.15 $0.30] -25 9/26/2018 (808) $-18,000 $7.20 $-2.05     $5.15 - $5,125 28.5% $-12,875
    Short Put 2021 15-JAN 45.00 PUT [CAKE @ $48.15 $0.30] -10 10/4/2018 (808) $-5,300 $5.30 $1.30     $6.60 - $-1,300 -24.5% $-6,600
    Short Call 2019 18-JAN 55.00 CALL [CAKE @ $48.15 $0.30] -10 9/26/2018 (80) $-3,000 $3.00 $-2.03     $0.98 $0.08 $2,025 67.5% $-975

    That's from a while ago so not sure why it never filled, maybe because you are trying to sell Jan 2019 calls for Jan 2021 prices?  

    We filled 9/26 on the short calls but they were HIGHER than our fill the next 3 days and didn't drop below $7 until 10/3 so I'm curious how you ended up not selling the covers?

    As I said though, not sure why you are doing anything with Jan 2019 and, as to 2021, if you have 5 long $45 calls, which are now $10, you can roll down to the $40 calls at $13 and buy 5 more so you would be in for (($13.85 + $3) + $13)/2 = $14.93 on the 2021 $40s and then you can sell the $55s for $6.30 and then you have 10 $40/55 bull call spreads for net $8.63 so a bit more than the $6.65 we intended to pay but a better strike…

    You can't stand pat in a bad market – that's very dangerous.  For 8 years our default has been to wait for the next rally but we may not have that kind of market anymore…


  30. Ah, I see what you mean about short Jans.  Well, you can't fix that, it's a shame you didn't sell them.  Any price would have been better than no price. 

    Same thing on those – they were over $3 until 10/1, when they dropped to $2.50.


  31. That was my problem…I didn't enter the CAKE BCS and short put trade until 10/3.  Good advice, and well taken.  Let me ask you about MDLZ then.  Similar issue but both short puts and short calls ARE Jan 2019.  Here's the advice you gave me back then…

    The long play is net $2.48 ($4,960) and that's fine though now you can go to 2021 where the $42 ($6.50)/$47 ($4.25) bull call spread is just $2.25 so I'd rather have 25 of those for $5,625 and sell 10 of the 2021 $40 puts for $3.20 ($3,200) to net in for $2,425 and then you can sell 8 (1/3) Jan $44 calls for $1.60 ($1,280) and 5 (1/5) of the Jan $42 puts for 0.95 ($475).

    Jan is 120 days from expiration and you've sold $1,755 of 100% premium which is 72% of the cash you laid out and your longs are 848 days out so 6 sales like that ahead means you have a very good chance of tripling up on this one over the next two years.  

    Since we're starting with 1/3 and 1/5 covers, there's plenty of room to adjust as well.  If MDLZ drops back to $40, for example, you could sell 5 more puts and use that money ($2,000ish) to roll the long calls down $2-3 in strike, which would widen the spread.

    Well, we hit $40 earlier this week (but getting a nice pop today).  Unfortunately, I'm missing the eight short Jan calls.  The five Jan 2019 $42 short puts are only down about $250 today, but will probably get worse if I don't fix it somehow. TIA!


    • General Electric (GE -11.1%) dips below $10/share to fresh nine-and-a-half-year lows following its Q3 top and bottom-line miss, dividend cut and disclosure that the SEC and Department of Justice are widening their probes into the company's accounting practices.
    • The DoJ’s involvement is particularly worrisome, as the move is “stepping up the seriousness of it,’’ says Bloomberg legal analyst Holly Froum. “The SEC can file civil charges, but the DoJ can file criminal charges.’’
    • “Fundamentally, this is worse than expected on profits, with the same dynamics as prior quarters, including results at Power and Renewables well below expectations and upside from Aviation,” says J.P. Morgan bear Stephen Tusa. “With a lack of guidance, it’s hard to judge the sustainability of each. Power is bad and certainly nowhere near as salvageable as bulls think, and we also don’t believe aviation can sustain these types of results.”
    • Gordon Haskett's John Inch says GE's Q3 results are "disappointing despite very low expectations. GE's Power and Renewables results were significantly worse than expected while O&G profit improvement underwhelmed. Cash flow remains negative YTD. A key question is how long Aviation strength can last at what appears close to a cycle peak."
    • CFRA analyst Jim Corridore reiterates his Hold rating but cuts his price target to $12 from $14, praising Culp for cutting the quarterly dividend to $0.01/share from $0.12 but he does not expect “material share price improvement until Culp gets some visible results.
    • The retail sector is outperforming on the day off a mix of strong earnings reports and bustling economic reads (consumer confidencechain store sales).
    • Outsized gainers include Ascena Retail (ASNA +10.9%), Chico's (CHS +7.4%), Kroger (KR+5.8%), Stein Mart (SMRT +4.6%), Nordstrom (JWN +5.7%), Duluth Holdings (DLTH +6.3%), Express (EXPR +5.3%), Signet (SIG +5.3%), Guess (GES +4.8%) and Williams-Sonoma (WSM+4.3%).
    • Chesapeake Energy's (CHK -13%$4B deal to acquire WildHorse (WRD +3.3%) reminds company bear Bernstein of Range Resources' purchase of Memorial Resource Development, and not in a good way.
    • It's another private-equity-backed emerging-play company getting bought by an "excessively" levered gassy E&P for "some blend of financial engineering and strategic shift," says the firm's Bob Brackett. And in the end, that deal was a disappointment for Range Resources, he says. (h/t Bloomberg)
    • On the other hand, WRD is "oily" in one key difference, and Chesapeake can take cost out of WRD's appraisal activity and transition to development.
    • Brackett is Underperform on CHK with a price target of $3, still implying 7% downside after today's plunge.
    • Sony (NYSE:SNE) is sitting solidly 4.9% higher in NYSE trading after its quarterly results featured a huge boost to operating profit outlook thanks in large part to accelerating trends toward a record year at its videogaming operation.
    • It now expects operating profit of ¥870B (up 18%, to about $7.71B), up from a previous forecast for ¥670B ($5.94B).
    • The forecast includes an 8% boost to expected gaming profits, but the buyout of EMI adds a significant chunk.
    • Net profits rose 32% to ¥173B for the quarter, up from ¥131B. Operating income was up 17%.
    • Sales rose to ¥550B in Game & Network Services from ¥433.2B, and Financial Services rose to ¥353.5B from ¥279.2B. Those gains more than offset revenue declines in Mobile Communications (to ¥117.8B from ¥172B) and Home Entertainment & Sound (to ¥274.9B from ¥300.9B).
    • Previously: Sony reports Q2 results (Oct. 30 2018)
    • Earnings call transcript
    • Press release
    • Lakewood Capital Management's Anthony Bozza weighed in negatively on a trio of well-known cannabis stocks today at the Robin Hood Investors Conference, sources tip Bloomberg.
    • Bozza recommended that investors short Tilray (TLRY +0.9%), Canopy Growth (CGC +1.9%) and Aurora Cannabis (ACB +2.2%).
    • #RobinHood18
    • Casinos in Nevada reported that gaming win revenue increased 1.3% Y/Y in September to $991.2M.
    • Revenue on the Las Vegas Strip fell 3.7% to $546.0M during the month. Downtown LV casino revenue was up 11.6% Y/Y to $54.99M. Boulder Strip revenue soared 27.5% Y/Y to $67.54M.
    • Total slots revenue rose 7.0% to $637.2M during the month off a win percentage of 6.8%.
    • Games and tables revenue was down 7.7% to $354.0M off a win percentage of 13.2%. Baccarat win was down 26.9% Y/Y.
    • Sports books win came in at $56.3M off of $571M in wagering volume. Football win was up 11.4% Y/Y.
    • Gaming Control board analysis: "When you look at the Strip, we are encouraged by the fact that slot volume was up a solid 3 percent and slot win was up 5 percent. Additionally, table volume excluding baccarat was up 4.7 percent. Unfortunately, the Strip didn’t hold well in all the major games with the exception of roulette and that was the main reason games win was down 11.7 percent."
    • Annual Nevada gaming win was up 1.4% to $11.75B (FY: 10/1/17-9/30/18).
    • Nevada Gaming Control Board full report (.pdf)
    • Nevada-related casino stocks: CZRMGMBYDWYNNMGMLVSFLLRRR.
    • What to watch: Next month Nevada laps the traffic decline following the devastating mass shooting at the Mandalay Bay.
    • Related ETF: BJK.
    • Copper and other base metals are lower in the wake of renewed concerns that a U.S.-China trade war is hurting global growth after Pres. Trump warned he had billions of dollars of new tariffs ready to go if a trade deal with China is not attainable.
    • Three-month copper on the LME fell as much as 1% to $6,098/metric ton, LME aluminum slipped 0.5% to $1,972/metric ton – its weakest level since August 2017 – and nickel was unchanged at $11,755/ton, hovering above a 10-month low of $11,700 hit yesterday.
    • China is the top consumer of industrial metals, accounting for nearly 50% of the world's copper demand, and miner BHP Billiton (BHP +1.2%) has trimmed its expectations of global growth for 2019 and 2020 due to the U.S.-China trade conflict.

  32. MDLZ/Idi – Yes, you have to learn to resist the temptation to chase trades that have moved away.  The whole point of that set was to sell that Jan premium against long positions so not selling the Jan premium made the whole trade pointless since our PREMISE was the market would drop and we'd collect the Jan premiums and THEN build into the positions over the next two years.  

    Again, with MDLZ, you didn't do the most important part.  The short puts you can roll out but without short calls – BASED ON WHAT WE EXPECTED TO HAPPEN – you bought a losing trade so, in that case, it was successful for you!  

    Fortunately, you got a nice pop on earnings and we're back to the $42 target but Jan is still 2 months away – it's not meant to be fixed, that was the target BUT YOU MUST SELL SHORT CALLS TOO!   Jan $42 calls are $1.40 at the moment so 0.20 less than you were supposed to collect BUT BETTER THAN NOTHING!!!  The point is you sell $2.50 ish in premium on the $42 puts and calls so anything between $39.50 and $44.50 is a winner as the sum of the puts and calls would be lower than $2.50 and THAT would be you gain for the quarter against the net $2,425 spread.  If we finish exactly at $42, you make $1,755 (or $160 less if you are only selling the calls today) and that's a VERY NICE return on $2,425 considering you have 8 more quarters left to sell.  

    So the potential on this trade is to sell 9 x $1,755 in premium or $15,795 and you will sometimes do well and sometimes not do well but even if you only win 20% of the time – that's still $3,000+ and more than 100% return over 2 years. 

    Day 14 is probably a bit early to be freaking out about your results, don't you think?


  33. Phil / PSA – Popping ahead of earnings – are you positive on them still?


  34. Anyone playing FB earnings?


  35. If Phil, or anyone, could give me the date of the last portfolio review I would appreciate it.  The latest review appearing under the Virtual Portfolio tab is the September review and I know that Phil did a review in October.  Thank you!


  36. John, not sure but i feel like it was pretty recent, maybe last week? If you click on posts by Phil and then scroll back a to last week or the week before I'm sure you'd find it pretty quick


  37. Thanks crs101010


  38. Sneaky rally now, everything up 1%+

    PSA/Batman – Such a nice, simple business, hard to see how they could mess it up.   $2.7Bn in sales = $1.5Bn in profits and on track for more of the same this year but they want $36Bn for the company at $207 so it's not very cheap so all we did was sell the 2021 $200 puts for $24 because $176 I consider reasonable so we either get in for that price or we keep the money.   

    FB/Soma – Total wild card.  

    Review/John – It was the Thursday and Friday of expiration last month.  I have to copy them to a review post still.


  39. Re FB-not sure they are facing their security problems, but I am seriously debating shorting them. Laying out those multi- millions for fines should put a dent in earnings Maybe! Had a short going 12X but sold it when it hit 400%.


  40. Coffee taking a big dive again – might be another chance to go long around $105.  Storage is way up over last year and crop reports are good so speculators are dumping out at the moment.  

    • Cheniere Energy (LNG +2.5%) will commission the first liquefied natural gas cargo from its new Corpus Christi export terminal on Nov. 15, the Texas port’s chief executive says.
    • The ahead of schedule commissioning of the cargo will mark the start of operations at Cheniere’s second LNG export facility and only the third major export facility in the U.S.
    • The Corpus Christi terminal had been undergoing commissioning work since the summer and was scheduled to come onstream in H1 2019.
    • Analysts estimate 1M-2.5M metric tons of LNG will hit the spot market in Q1 2019 due to start-ups at new U.S. facilities, a significant amount in an industry still dominated by rigid multi-year supply contracts.
    • Tesla (TSLA -1.5%) CEO Elon Musk added another 29,844 shares to his position in the company through his trust.
    • Musk has also committed to purchase an additional ~$20M worth of shares in a direct transaction by the end of the week.
    • Musk's intention to pick up the new shares was previously disclosed.
    • SEC Form 4

    Good deal for Musk at $330 if he has a buyer at $420 – you would think he'd buy more…

    FB/Pirate – Half the people on Earth use FB – I can't bet against that – especially this low in their channel.  

    FB "only" $422Bn at $146 and they made $16Bn last year and $10Bn in the first half of this year.  How can you short that?  I hope they do miss and I'll go long – it's tempting here but I agree they do have a lot of issues that need to be resolved but $140s is probably a gift.


  41. Not freaking out at all, but don't want to wait until I get to a point where it's warranted either.  Just learning some of these more advanced options concepts, so I sincerely appreciate the extra advice, Phil!  Thanks!!


  42. Phil / board – if you were going to sell short term calls against 2021 $10 calls what would be good here?

    June $12 @ .67?


  43. Phil- your probably right and usually are BUT they do have issues. That's why I'm hesitating. Even with good earnings, they could go down in this  crazy market. I have aapl calls uncovered just for the same reasons that it is a money maker like FB.


  44. No problem Idi – it's a learning process as you are constantly selling short-term puts and calls and adjusting but, once you get used to it, the ups and downs won't bother you.

    $10 calls/Coulter – Well kind of depends what stock.  F is $9.50 but the June $12 calls are 0.17 so 0.67 on your mystery stock sounds good but maybe it's not a $10 stock and you're just selling $10 calls or maybe it's way more volatile than F?

     If not for the issues, I'd be buying now. 

    Wow, Dow up 440, right at the weak bounce line at 24,800.  /ES still below weak, /NQ below 10%, RUT below weak and NYSE at weak.   So, overall, this rally is testing weak bounce lines again.  


  45. There have not been two consecutive up days in the month of October – we'll see how tomorrow goes.  


  46. haaa I guess it does sorry GE 2020 $10 Calls


  47. FB, yeah I cleared out of the 140 puts thinking the bad news got baked in already and 11.00 per contract was kind of a gift volatility wise. I went long a few 165 calls just in case they snap back hard


  48. looks like FB is falling, I see sub 139 already


  49. yep don't think FB is gonna help recover weak bounce lines as of now


  50. FB is bouncing- looking for news.


  51. Not heavy short interest in FB either so that's telling.


  52. fb up now


  53. I read that they received heavy political ads for the previous months so I went long…looks OK.


  54. Thanks Phil Your the Greatest, to quote good old Ralph Cramden!


  55. I added some 135/145/160 butterflies on FB for a small debit and am otherwise about out of it. Looks like probably a near scratch here unless it opens a few bucks lower. 



  56. Trump Arrives in Pittsburgh as Many Make Clear His Visit Isn’t Welcome


  57. I saw this private jet service in a Costco mailer circular today, sort of hilariously nestled between paper towels and TV's. The price is $16,000 if you're curious.


  58. unless FB is up significantly tomorrow I'd be looking for a decay to 125 or so over the next few weeks, and also assuming the overall market remain weak/down.


  59. Phil – trading your strategy in an IRA – can't have the naked short puts or naked short calls of the third leg. Is the way to trade then by using two verticals, one per the published strategy, and then cap the exposure on the third leg by adding a fourth leg of a way OTM (ie cheap as possible, but still liguid) in essence making it two verticals, one long one short. Sorry to have to make a simply strategy into a complicated mess but Fidelity at least won't let me take on a naked short option in an IRA.


  60. dawgydaddy -Yes, using a vertical instead of a naked put or call is way to around Fidelity's restorations. I've been doing that for years….


  61. One wag's comment on yesterday's tax changes announced in the UK budget speech by the Chancellor, where the opposition challenged it as tax breaks for the rich:

    Old one but still true….. Suppose that once a week, ten men go out for beer and the bill for all ten comes to £100. If they paid their bill the way we pay our taxes, it would go something like this… 

     

    The first four men (the poorest) would pay nothing. 

    The fifth would pay £1. 

    The sixth would pay £3. 

    The seventh would pay £7. 

    The eighth would pay £12. 

    The ninth would pay £18. 

    And the tenth man (the richest) would pay £59.? 

     

    So, that's what they decided to do. The ten men drank in the bar every week and seemed quite happy with the arrangement until, one day, the owner caused them a little problem. "Since you are all such good customers," he said, "I'm going to reduce the cost of your weekly beer by £20." Drinks for the ten men would now cost just £80. 

    The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free but what about the other six men? The paying customers? How could they divide the £20 windfall so that everyone would get his fair share? They realized that £20 divided by six is £3.33 but if they subtracted that from everybody's share then not only would the first four men still be drinking for free but the fifth and sixth man would each end up being paid to drink his beer.

    So, the bar owner suggested that it would be fairer to reduce each man's bill by a higher percentage. They decided to follow the principle of the tax system they had been using and he proceeded to work out the amounts he suggested that each should now pay. 

     

    And so, the fifth man, like the first four, now paid nothing (a 100% saving). 

    The sixth man now paid £2 instead of £3 (a 33% saving). 

    The seventh man now paid £5 instead of £7 (a 28% saving). 

    The eighth man now paid £9 instead of £12 (a 25% saving). 

    The ninth man now paid £14 instead of £18 (a 22% saving). 

    And the tenth man now paid £49 instead of £59 (a 16% saving).?

     

    Each of the last six was better off than before with the first four continuing to drink for free.

    ?

    But, once outside the bar, the men began to compare their savings. "I only got £1 out of the £20 saving," declared the sixth man. He pointed to the tenth man, "but he got £10!"

    "Yeah, that's right," exclaimed the fifth man. "I only saved a £1 too. It's unfair that he got ten times more benefit than me!"? 

    "That's true!" shouted the seventh man. "Why should he get £10 back, when I only got £2? The wealthy get all the breaks!"? 

    "Wait a minute," yelled the first four men in unison, "we didn't get anything at all. This new tax system exploits the poor!" The nine men surrounded the tenth and beat him up.? 

    The next week the tenth man didn't show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important – they didn't have enough money between all of them to pay for even half of the bill!? 

     

    And that, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy and they just might not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier. 

     

    For those who understand, no explanation is needed. 

    For those who do not understand, no explanation is possible.


  62. BDC—that is funny I was just telling my husband about the jet service ad in the Costco flyer—-not looked into the details but if you want to take a family on a trip might not be a bad deal —wow they get into everything—-amazing co 


  63. Good morning!  

    Up again, testing 6,900 on /NQ, 25,000 on /YM, 2,700 on /ES and 1,520 on /TF so good if those hold.

    I guess FB decided to be higher, finally. 

    IRA/Dawg – You can do it that way but remind me in today's chat and we can look at a couple of specifics.

    Taxes/Winston – They should use the extra money to pay off the deficit caused by decades of the richest 10% not paying their fair share (which is how they got so rich).


  64. /rb is down


  65. "They" should throw out the entire tax code and write one that is simple and fair. End all the loopholes and schemes to avoid paying taxes. Then people would focus on making money instead of hiding it. Free markets are the best way to determine winners and losers, we don't need government to do it. Central planning has never worked because those able to manipulate it will. We simply need an even playing field. So much money and effort are spent in trying to get an unfair advantage. Ask yourself why we pay interest on every dollar in existence? It's because the rich and powerful like it that way. Some day enough people might wake up to the reality of what we have become, but I still doubt anything will change until it all falls apart. Taxation is theft. End the Fed. Let freedom ring! Never gonna happen, but I hold to my radical ideas knowing the deck has been stacked in favor of those who can afford to get it done. I'm from a 10% family. I've watched my parents all my life try to avoid paying taxes. It's almost a sport for them. It sickens me. Something my dad, who I loved dearly, said has stuck with me. All men are created equal, but some of us are more equal than others. I don't need or want an unfair advantage. The world could be a better place… but where is the profit in that?


  66. And let's be real. The deficit was caused by spending money we didn't have. Until we stop that it will continue to increase. It's that simple.